Advanced wealth management tools

Menu

Tag Archives: Latinamerica

The first months of 2015 were really busy. The markets have a main driver: the currency war. The main central banks are playing with the monetary policy, which has become very expansive everywhere. The list grows every month: more than 20 countries have reduced their rates. Cash flows everywhere, because monetary authorities and governments are really concerned about disinflation (not deflation…still). The main effects are the consequences in the exchange rates and the positive wave in the stock exchanges.

In the middle of this trend, US seems to be the odd, because the Federal Reserve has begun the way back from the quantitative easing applied in the last years. The outlook is that the institution will raise the interest rates sooner o later, as some messages have been already sent to the markets, but its members do not agree about the proper date. US economy has slowed its path in the last months, although it is typical in the last years linked to hard winters that stop the economic activity. However, the intention has already effects in the dollar, which has strengthened its position against all currencies. On the other hand, this possibility has no apparent effect in the stock exchanges, as the Nasdaq has topped historic positions.

Europe is living what many experts and governments (mainly from Southern Europe) demanded before: a quantitative expansion, as it was made in the US. The European Central Bank began the asset purchases in January. Euro has dropped to forgotten levels (around 1.07 dollars). Meanwhile, the decision opens a rally in the European stock exchanges, which have very welcomed this cash flow: just in the first quarter, Madrid increased 11.3%; Frankfurt, 22.5%; Paris, 20.7%; Milan, 21%. The new Greek government and the chance that Greece can be out of the euro (known as Grexit) is probably discounted by markets.

Latin-American countries are, on the contrary, suffering from a strong dollar, as most of them depend on exports. The drop also in the oil price (around 50% in six months) has very negative effects for Brazil, Venezuela and Mexico, which are very dependent from it. Other negative effects are inflation, as the exchange rates against dollar have become very volatile.

Finally, Asia is looking its three poles with different eyes: India is becoming stronger, as markets are really betting for Mr. Modi’s government. China, on the other hand, is creating new worries about the strength of its development, as several indicators open some doubts. In the case of Japan, the country is still in its endless crisis since the end of the 20th century and the outlook is not much better despite the recent new election.

This year has begun with the markets playing hard rock. The list of figures and events is long and all of them have effects on the markets. Obama declared the end of the crisis, radical left won in Greece, ECB began the European QE, China grew at the lower pace since 1990… Impossible to miss!

First of all, it is necessary to take into account a point in macroeconomics. IMF reduced its world growth outlook for 2015 last month. Amongst the risks, it is found the cheaper oil prices. Why? Yes, it pushes consumption and reduces industrial costs, but it can feed the deflationary trend. Deflation is very risky, as people tend to postpone investments’ and purchases’ decisions. Current price is around $50, but the pressure from Arabian producers could push it to a lower bar.

Several experts have already warned that 2015 would be an unstable year for economics. However, US President Obama said in his State of Union address to the Congress that the economic crisis was over. American economy has experienced a recovery, but Federal Reserve is still reluctant to increase rates, as it does not perceive inflation risk. Although observers tend to think that the American central bank will hike rates in summer, it is still soon to have a clear perspective about that decision with the current instability.

In Europe, the ECB did finally what many economists recommended some months, even years, ago: an expansive monetary policy printing money. The European QE will expand ECB balance in €1 trillion, but effects will take at least six months. In any case, markets make their own party, till Greeks voted the radical left party Syriza in the last election. New Greek prime minister declared his intention to negotiate the country debt, but European partners do not agree. Markets have suffered abrupt ups and downs. Another point of instability was the Swiss National Bank decision to unpeg its currency from euro, which was not expected by investors.

Latin America is still the weakest world region. As the IMF comments, these countries are very dependent from oil and commodities. The current negative price trend for these products is punishing the market evaluation about the region.

In Asia, China registered the lowest growth (“just” 7.4%) since 1990, which can show some weaknesses in its develop. These figures have partially stopped the soared trend since People’s Bank of China reduced its rates in November. In Japan, recent election victory by prime minister Abe guarantees that his expansive economic decisions will continue, but it is to see if they have effects after 25 years of weakness.